Free advice at retirement, master trust oversight of drawdown and unlimited free withdrawals. Has Willis Towers Watson’s LifeSight solved the advice gap dilemma created by pension freedoms? John Greenwood speaks to David Bird, head of proposition development at WTW’s LifeSight to find out
Before the introduction of George Osborne’s revolutionary pension freedoms in April 2015, dealing with retiring employees unable to afford financial advice was pretty straightforward for large employers and trustees of big DC schemes. With annuity purchase pretty much the only game in town for this group, an annuity broker that had been vetted by the pension consultant or corporate IFA as robust and good value would cover off most of the issues that would be covered through a full advice process. But with pension freedoms introducing massive complexity to the at-retirement decision-making process, an execution-only brokerage approach has no longer been tenable.
Willis Towers Watson’s LifeSight master trust is looking to fill this gap, for its own clients at least, with a proposition that addresses the advice issue by the bold step of simply paying for it out of the fund.
“Members of our master trust will get free advice at retirement. The fund pays for them to take advice. They can then decide whether they want to cash in, buy an annuity, or move into drawdown,” says Bird.
Other schemes taking this approach are few and far between, if entirely non-existent at present, but Bird is adamant that LifeSight’s partnership with Hub Financial Solutions, a reincarnation of execution-only broker The Open Market Annuity Service (TOMAS) means it can deliver regulated advice across the piece, even to members who have only been within the scheme for a short period before retirement. “We have been able to negotiate some pretty keen prices on this because of our scale. However we cannot disclose the cost per member for advice.”
This compares favourably with the already keenly-priced £49 per employee advice charge offered by LV to members of The People’s Pension, although it should be noted that the LifeSight offering is only open to WTW’s client base of mostly large schemes. In fact the two schemes confirmed as entering the trust later this year are huge. All the same, the Hub FS solution means lots of low-fund retirees will get advice, online and on the phone, to ensure they understand the decisions being put before them.
For those exiting the advice process into drawdown there is no further advice implementation charge, again comparing favourably with advice arrangements that carry an implementation charge where advice is to be acted upon.
“We then give members entering drawdown a tool that tells them the number of years their fund is likely to last at the rate they are spending,” says Bird, who adds that it is not the role of the master trust drawdown arrangement, which is non-advised, to tell people how much they should or shouldn’t withdraw. “There is no clear pattern as to why people are taking drawdown. Some people want to draw cash out as and when it suits them, others want to leave it there as long as possible, and others wants to use it for an income for life.”
Some players have shied away from non-advised drawdown, perceiving it as presenting regulatory risk. However, Bird argues that the fact individuals can withdraw and blow the lot if they want moves the goalposts. And there are constant safeguards to ensure people know what they are doing.
“Every time they come in to change their withdrawal rate the system will play back to them what it means in terms of running down the pot. We also sent them a message if they get to within five years of their pot running out. It uses a stochastic model that gives them a range of outcomes, with a central predicted age at which the fund will be depleted,” he says.
Drawdown investors can make multiple withdrawals, accessible online and free of charge, down to a minimum £100 a time – Bird describes it as ‘almost a bank account drawdown approach’.
“You can make a withdrawal every day if you want. We even considered whether we should offer a bank card for withdrawals. But we decided against this for security reasons and also because we wanted people to be able to see the impact of the withdrawal on their pot depletion date each time they make a change to withdrawals.
Drawdown charges are priced on a per scheme basis. “No-one will pay more than 50 basis points for everything including administration and investments. The only thing you will ever have to pay for is a pension split on divorce,” says Bird.
LifeSight is also finalising terms for an annual financial advice ‘MOT’ for around £100 a year, although members are free to self-serve on a non-advised basis.
It is early days for the Willis Towers Watson master trust. It currently has two employers in it, and only 20 members in the drawdown phase at the present. However it is in the process of taking on two very large schemes in July and October this year. That will mean that by the end of the year there will be £2 billion of assets moving in to the master trust.
“We are built, ready to go and taking business,” says Bird.